Government issues response to the UK ETS expansion to waste

Natasha Barlow provides insight into the Government's response to the UK Emissions Trading Scheme consultation.

The government has this week issued a long-awaited interim response to the consultation relating to the expansion of the UK Emissions Trading Scheme (UK ETS) to the waste sector. The intention is that energy from waste (EfW) and waste incineration facilities will enter the UK ETS fully from 2028, when operators will be obliged to acquire and surrender carbon allowances for their fossil-derived CO2 emissions.

The key takeaway from the government’s interim response is that a voluntary MRV (monitoring, reporting and verification) period will commence from January 2026. In scope are combustion and process emissions from EfW and waste incineration processes, including advanced thermal treatments and advanced conversion technologies. During this period, operators will not be required to obtain carbon allowances, nor will there be any penalties for failure to participate.

The threshold for inclusion is based on the small waste incinerator plant throughput, meaning that facilities processing three tonnes an hour or more of non-hazardous waste, or 10 tonnes a day or more of hazardous waste, can participate in the MRV period. Clinical waste incinerators, HSE (Hospital and Small Emitter) and USE (Ultra-Small Emitter) are all in scope.

High temperature incinerators that deal primarily with hazardous waste are, however, out of scope. This is in response to respondents’ concerns that there are no alternatives to the incineration of certain hazardous waste types, including POPs, and therefore it is not possible to decarbonise. Further, there were concerns that the inclusion of hazardous waste would encourage export, particularly given the EU ETS exemptions.

Responses to the consultation showed concern across local authorities and the waste industry about landfill or export of waste becoming a cheaper option. While the majority of respondents did not support the extension of UK ETS to landfill, there was acknowledgement that measures (e.g. increasing landfill tax) need to be taken to stop this becoming a more cost-efficient option.

As expected, the responses to the consultation illustrate local authorities’ concerns that the cost of UK ETS will be directly passed through. There is a general recognition in the government’s response of the financial burden on local authorities, and further assurances that packaging extended producer responsibility (pEPR) will help to mitigate the cost of incinerating packaging materials. However, the response falls short of confirming any measures or funding to support local authorities to manage the significant cost impact of UK ETS.

In order to monitor emissions, the government intends to use an integrated method using analysis of carbon-14 and emissions factors, and we are informed that the government will issue guidance by the end of 2025 about how to participate in the MRV period. The detailed methodology of how emissions will be measured for the purposes of allowances is not yet clear, however, and local authorities will no doubt remain concerned about the practicalities of installing any measurement equipment and related budgeting.

Given the remaining uncertainty, we would encourage local authorities and EfW operators to take the following steps:

1. Participate in the voluntary MRV period to help understand your emissions and future exposure to UK ETS. Data will also help to drive the development of further policy.
2. Review and, where necessary, amend waste management contracts to address forthcoming carbon costs.
3. Budget now for the anticipated costs of UK ETS from 2028, and explore measures to reduce fossil carbon content in waste streams.